The Sole Proprietor

Many businesses are sole proprietorships, firms owned and
operated by a single person. When a person decides to open an
independent business, that person is then entirely responsible
for its success or failure. Any profits go to the owner; any
losses are his or her responsibility as well. If the losses prove
to be greater than the investment, the individual is responsible
for paying them, even if this depletes all personal assets.

One of the advantages of a sole proprietorship is that an owner
can make decisions quickly and decisively without having to
consult others. And an individual proprietor, by law, pays fewer
taxes and at a lower rate than does a corporation.

There are disadvantages to this form of business organization,
however. A sole proprietorship ends with the incapacity or death
of the owner. The assets can be inherited by a person who may
then become the operator, but legally the business dies with its
owner. Also, since it is dependent upon the amount of money the
owner has saved or can borrow, usually it does not develop into a
large-scale enterprise.

In spite of its limitations, the sole proprietorship is well
adapted to many kinds of small businesses and suits the
temperament of many persons who like to exercise initiative and
be their own bosses. Some economic contributions of small
business are:

A small business is often the starting point for developing a
new product or service. One person tries out an idea. If it is
successful, the business grows, or the product may be bought by a
larger firm.

The small business can give an individual a chance to gain
experience, which the person may use later on a larger scale.

Small businesses are particularly well suited for meeting
specialized local needs.

Artisans can provide individualized products for customers
who have grown weary of mass-produced goods.

Small businesses provide a service where knowing one's
customers is important.

Sole proprietors are reassuring to customers who believe an
individual who is accountable will do a good job.

Small businesses often grow into large ones, adding to the
economic vitality of the nation. Small business advocates contend
that 55 percent of American technical innovation comes from
small- and medium-size businesses. Certainly, many of the
creative innovators in the American computer industry, including
those who built successful companies in what is now known as
Silicon Valley, California, started out as "tinkerers" working on
hand-assembled machines in their garages. They have become part
of American business lore. By any measurement, small businesses
are an important part of the ferment, the creativity, and the
competition that provide new strength to the American economy.

Of course, it is true that small businesses often fail. But in
the United States "failure" of a small business venture does not
carry with it the social stigma or opprobrium for the failed
entrepreneur that it does in some countries. Often, failure of a
small business venture turns out to be a valuable learning
experience for the entrepreneur, who may be more successful the
second or third time. Unsuccessful attempts to start a business
become part of the larger process of sorting out the market and
making it more efficient, according to small business experts.